Now that you are familiar with the steps involved in the accounting cycle, it will be easier to understand misconceptions about the accounting cycle.

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Misconception #1: You Don’t Need to Track All Data

Sometimes your business has so much data that it can be overwhelming. Maybe you’re stepping into an accounting role at a firm that has put all of their data in several hundred pounds worth of files, all for you to go through. Whatever the situation is with the transaction and event data, you need to collect it all – at least as much of it as you can get – and you need to analyze it all. What’s worse? Being overwhelmed with organizing, sorting, tracking, and recording data now, or not being able to figure out where $20,000 went because inaccurate records were kept?

Misconception #2: You only Need to Go Through the Accounting Cycle at Tax Time

Are you serious?

Think about the headache that staving off important accounting tasks until that most stressful time of year comes about causes. Your job (and your tax accountant’s job) will be a million times easier if you follow the steps of the accounting cycle monthly, quarterly, and annually – even if you are just running a small business.

Misconception #3: You Only Need to Balance Your Ledger Once

You will notice on the above accounting cycle description of steps, that there is a trial balance prepared not one, not two, but three times over the course of the accounting cycle. One common accounting cycle misconception is that the only time you need to balance your ledger is right after you’ve entered in your information into journals. If you perform an unadjusted trial balance, you can test out whether the debits and credits equal one another and ensure your general ledger is accurate before proceeding any further in your accounting cycle. After you have made any adjustments to ensure that all accounts are at their correct balances, then you will perform a trial balance once again. Once you have closed out your accounts for the period, you will once again perform a trial balance. This ensures that your records are accurate.

Misconception #4: You Don’t Need to Close Out Accounts Each Accounting Period

When you close your revenue and expense accounts out, you will be zeroing them to prevent future problems. If you do not close out your accounts, it will be difficult for you to figure out whether January’s report included that last transaction that posted February 1st or not. Do yourself a favor and give the accounts zero balances at the end of each of your accounting periods. The balances (whether they are positive or negative) will be kept track of in your owners’ equity journal.